The economy is based on exports of raw materials and agricultural goods, with nearly all manufactured goods imported. Trade is primarily through Dutch firms. Rice imports into the Dutch East Indies increase tenfold in value from 1880 to 1929 while the value of cotton goods triples from 1900 to 1925. Meanwhile, overall, export production rises about 5 percent per year from 1893 to 1928.
The Depression causes a slump in export prices, making imports of manufactured goods difficult. Competition from cheap Japanese products lead to a Crisis Act that imposes discriminatory tariffs that give Dutch goods an advantage. Some foreign firms invest in domestic manufacturing in an attempt at import substitution.
Raw materials, in particular oil, fuel the Japanese war machine, one of the chief justifications for the invasion.
Trade continues but is affected by the ruined world economy and by the fortunes of the struggle for independence, as plantation areas shift hands.
Import licenses for consumer goods and for raw materials needed in manufacturing are granted to those with political ties. Dutch companies still play an important role in the exports of plantation crops and mineral resources.
Plantation exports decline as a result of mismanagement of nationalized plantations, while anti-Western rhetoric is accompanied by closer trade links with China.
Indonesia reintegrates into the international economy after years of anti-imperialist rhetoric and economic decline. But the New Order still follows an import-substitution strategy to reduce imports and create jobs by boosting manufacturing and protecting key industries from competition. Many protective tariffs and foreign investment restrictions remain in place.
Falling oil income prompts a shift from import substitution to boosting exports through devaluation, incentives, foreign investment, and an end to monopolies that hurt producers. Manufactured exports grow from $1 billion in 1982 to $9 billion in '90. Protection of key industries remains, but by 1995 tariffs replace import quotas; those tariffs fall from 37 percent pre-1985 to 15 percent in 1995.
The crisis puts an end to a boom period in which exports increased 11 percent annually from 1993 to 1996. After the crisis, the unstable currency and disappearance of credit hampers Indonesian companies ability to trade, while the weak economy reduced consumer demand for the increasingly expensive imports.
Export growth returns to pre-crisis levels, partly because of rising oil prices. Even non-oil exports reach 92 percent of pre-1997 levels. Imports rise more slowly, at only 60 percent of what they had been before the crisis. But the 2002 Bali bombing decimates the tourist sector, a major foreign-currency earner, and sets back the fragile recovery. Oil-price hikes in early 2003 offer a respite.
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